1. business and industrial

BVR
What It’s Worth
Free
Download
How to Use Transaction
Data for Private Company
Valuations: A Primer
(A 2013 Update)
Thank you for visiting Business Valuation Resources, the leading provider of
quality acquisition data and analysis. For more information about any of our
premier valuation products or services, please call (503) 291-7963 ext. 2 or
email info@bvresources.com.
You may also download our complete product brochure at:
www.bvresources.com/allproductbrochure
For permission requests, please email permissions@bvresources.com.
Business Valuation Resources, LLC
1000 SW Broadway, Suite 1200 | Portland, OR 97205
(503) 291-7963 | info@bvresources.com
www.BVResources.com
How to Use Transaction Data for Private Company Valuations: A Primer
In recent years, online databases, which cover the details of many thousands of
transactions, have become increasingly relevant to the practice of business valuation.
When valuing or pricing businesses, appraisers should know how completed
transactions have been priced and structured.
Transaction databases relate the price paid in other industry transactions to the
respective company’s underlying financial data. The results of this research, “valuation
multiples,” are applied to the subject company’s underlying financial data to develop
indications of value. See Exhibit 1 for a checklist for using transaction databases for
pricing and valuation.
Exhibit 1. Checklist for Using Transaction Databases for Pricing and Valuation
1. Specify the parameters of the search.
a. Industry: specify a standard industrial classification (SIC) code and/or
North American Industry Classification System (NAICS) code or a range
of codes.
b. Time frame: Specify a beginning and an end date.
c. Size: Specify size range as measured by deal value, equity value, sales,
assets, earnings before interest, and net income (all of these
characteristics are not necessarily available in all databases).
d. Specify the database(s) to include in the initial search.
2. Query as to number of transactions meeting the criteria in each selected
database.
a. If there are not enough transactions, broaden one or more criteria and
query again.
b. If there are too many transactions, narrow one or more criteria and query
again.
3. Before making a final selection of transactions, view or print the details of each
transaction under consideration. (Transaction reports available for each database
are presented later in this article.) By examining the transaction details, analysts
may eliminate some for various reasons:
a. Company description not compatible.
b. Valuation multiples not meaningful.
c. Complicated transaction structure.
4. Select which valuation multiples are most meaningful for the subject.
5. Prepare a table of valuation multiples (see Exhibits 2 and 3).
6. Select multiples to apply to the subject company’s fundamental data (see
Exhibits 2 and 3).
7. Prepare a valuation table (see Exhibits 4 and 5).
8. It’s not necessary to use both an equity and an invested-capital procedure. If you
use both, there will be a range of indicated value, which may be satisfactory for
some purposes, such as fairness opinions. If it is necessary to develop a point
estimate (for estate or gift taxes or property distribution in divorce), reconcile the
estimates, choosing one or the other or some point in between.
Exhibit 2. Selection of Guideline Company Equity Multiples
Selection of Guideline Company Equity Multiples
Equity
$6,187,500
$13,000,000
$42,000,000
$33,675,000
$23,715,625
$23,337,500
$6.2MM-$42.0MM
Nimbus
Cirrus
Stratus
Stormy
Mean
Median
Range
Std. Dev.
C of V
Multiples
selected
Equity/Sales
0.18
0.20
0.72
0.35
0.36
0.27
0.18-0.72
0.25
0.70
0.35(a)
Equity/Net
Income
10.55
2.31
15.84
7.04
8.93
8.80
2.31-10.55
5.71
0.64
9.0(b)
Equity/GCF
4.46
1.82
12.59
3.50
5.59
3.98
1.82-12.59
4.79
0.86
4.5(b)
Equity/Book Value
of Common Stock
4.50
6.50
4.00
1.50
4.13
4.25
1.50-6.50
2.06
0.50
4.50(c)
(a) Above median because return on sales above median. (b) Slightly above median because slightly less risk. (c) Above median because above median return on equity.
Definitions:
GCF is Gross Cash Flow = net income + noncash charges
C of V is Coefficient of Variation = standard deviation/mean
Exhibit adapted from: Pratt, S (2005). The Market approach to valuing businesses , Second Edition. New York: John Wiley & Sons, Inc. See p. 132.
Exhibit 3. Selection of Guideline Company MVIC Multiples
Selection of Guideline Company MVIC (Market Value of Invested Capital) Multiples
Nimbus
Cirrus
Stratus
Stormy
Mean
Median
Range
Std. Dev.
C of V
Multiples
selected
MVIC
$13,187,500
$28,200,000
$42,000,000
$54,675,000
$34,640,625
$35,350,000
$13.2MM-$54.7MM
MVIC/Sales
0.38
0.43
0.73
0.57
0.53
0.5
0.38-0.73
0.16
0.30
0.55(a)
MVIC/EBITDA
5.99
2.37
8.57
3.79
5.18
4.89
2.37-8.57
2.71
0.52
5.00(b)
MVIC/EBIT
9.42
2.72
9.94
5.69
6.94
7.55
2.72-9.94
3.39
0.49
7.50(b)
MVIC/Book Value
of Invested Capital
1.57
1.64
3.86
1.26
2.08
1.61
1.26-3.86
1.20
0.57
1.60(c)
(a) Slightly above median because EBIT/Sales slightly above median. (b) Near median - company quite comparable to group. (c) At median because company return on book
value of invested capital near median.
Definitions:
EBITDA = Earnings before interest, taxes, depreciation, and amortization
EBIT = Earnings before interest and taxes
MVIC = Market value of invested capital, computed by (shares of stock outstanding x price per share) + interest bearing debt
Exhibit adapted from: Pratt, S (2005). The Market approach to valuing businesses , Second Edition. New York: John Wiley & Sons, Inc. See p. 133.
Exhibit 4. Valuation Using Equity Multiples
Valuation Using Equity Multiples
Company Fundamentals
Selected Multiple
(from Exhibit 2)
Indicated value
Weight
Weighted value
Sales
$48,000,000
Cash Flow
$3,848,750
Net Income
$2,648,750
Book Value
$5,000,000
0.35
4.5
9.0
4.5
$16,800,000
x 0 (a)
0
$17,319,375
x 0.10 (b)
$1,731,938
$23,838,750
x 0.50 (c)
$11,919,375
$22,500,000
x 0.40 (d)
$9,000,000
Weighted Value
=
$22,651,313
(a) No weight because of great differences among subject and guideline companies. (b) Only 10% because of very high coefficient of variation among guideline companies. (c) Most weight
because market places high weight and second lowest coefficient of variation. (d) More weight than normal because of low coefficient of variation.
Exhibit 5. Valuation Using Invested-Capital Multiples
Valuation Using Invested-Capital Multiples
Company Fundamentals
Selected Multiple
(from Exhibit 2)
Indicated value
Weight
Weighted value
Less: Long-term debt
Sales
$48,000,000
EBITDA
$5,800,000
EBIT
$4,600,000
Book Value of
Invested Capital
$16,000,000
0.55
5.0
7.5
1.6
$26,400,000
x 0.25 (a)
$6,600,000
$29,000,000
x 0.30 (b)
$8,700,000
$34,500,000
x 0.20 (c)
$6,900,000
$25,600,000
x 0.25 (d)
$6,400,000
Weighted Value
=
$28,600,000
$7,500,000
$21,000,000
(a) Lowest coefficient of variation. (b) EBITDA usually most important variable. (c) EBIT important but less so than EBITDA. (d) Asset value somewhat important.
There are many benefits to using comparable transactions from databases. If your
valuation is part of litigation, valuation multiples derived from transacted businesses are
easy to explain to juries and judges. Further, courts have expressed a preference toward
real-world transactions. As the Honorable Christopher S. Sontchi, U.S. bankruptcy judge
for the District of Delaware, put it: “Courts have consistently held that the use of actual
market data is the preferred method to value an asset.”1 Further, he says that the
comparable transactions method is considered one of the “standard methodologies” for
valuing a business. When pricing a business for sale, using real-world transactions as a
basis for pricing your subject business lends credibility to your work product in
discussions with buyers and/or sellers.
EQUITY VERSUS INVESTED CAPITAL
The two procedures used for valuation with almost all transaction databases are equity
and invested capital.
In the equity procedure, the price paid for all common equity (stock, partnership
interests, and sole proprietorships) is divided by some measure of return to equity or
some balance sheet measure relating to equity. The resulting ratio is a valuation multiple
applicable to common equity.
In the invested capital procedure, the price paid for all invested capital is referred to as
the market value of invested capital (MVIC). This usually includes interest-bearing debt,
preferred equity, and common equity. In the invested-capital procedure, the price paid
for all invested capital (“price” includes debt assumed in the transaction) is divided by
some measure of return available to all stakeholders (debt and equity) or some balance
sheet measure relating to all stakeholders.
Generally, invested capital multiples are preferred because they mitigate the differences
between the capital structures of the comparable transactions and that of the subject
company to which the valuation multiples are applied. Applying equity multiples assumes
the same capital structure and proportion of debt between the subject company and the
comparables. This is often not the case. It is advisable to apply an invested capital
multiple to the subject and then subtract the subject’s interest-bearing liabilities (note
that the user should next review what is transferred in the comparable sale and make
adjustments accordingly to the subject’s final value). Guidance to apply invested capital
multiples and adjust the derived result to determine the subject company’s equity value
is discussed later in this article.
1
“Valuation Methodologies: A Judge’s View,” American Bankruptcy Institute Law Review, Spring 2012, page
14.
MARKET VALUATION MULTIPLES
A list of equity and invested capital multiples computed by each database is shown in
Exhibit 6. In addition to the computed multiples, the databases give enough information
to compute more valuation multiples, if desired.
Exhibit 6. Equity and Invest Capital Multiples
Equity Multiples
Equity/Sales
Equity/Net Income (P/E)
Equity/Book Value of Equity
Equity/Discretionary Earnings
Invested-Capital/Multiples
Invested-Capital/Sales
Invested-Capital/Gross Profit
Invested-Capital/Earnings Before Interest
and Taxes (EBIT)
Invested-Capital/Earnings Before Interest, Taxes,
Depreciation, and Amortization (EBITDA)
Invested-Capital/Book Value of Invested Capital
Invested-Capital/Discretionary Earnings
Mergerstat/BVR
Premium Study
x
x
x
Pratt's Stats
BIZCOMPS
Public Stats
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Exhibit compiled from databases available online at www.BVMarketData.com
When invested capital multiples are used, the value of the interest-bearing debt must be
subtracted from the market value of the invested capital derived for the subject company
to arrive at the indicated value of the equity for the subject company, as shown in Exhibit
5.
Most valuation analysts prefer invested capital price/sales over equity price/sales
because all capital, not just equity, supports sales. Equity price/sales multiples can be
highly misleading if compared among companies with disparate leverage factors.
“Sales,” as used here, is a synonym for revenue.
A fundamental performance measure, perhaps unfamiliar to some readers, is
“discretionary earnings.” This is equal to earnings before interest, taxes, depreciation,
and amortization (EBITDA) plus all compensation, benefits, and perks to one
owner/operator. Business brokers widely use discretionary earnings for pricing and
valuing small companies. BIZCOMPS calls it “seller’s discretionary earnings” (SDE),
while Pratt’s Stats calls it by “discretionary earnings,” as listed in the International
Business Brokers Association glossary. One difference between BIZCOMPS’s SDE and
Pratt’s Stats’ discretionary earnings is that Pratt’s Stats includes the owner’s salary in
the calculation (i.e., EBITDA + owner’s compensation) but does not include additional
benefits or perks to the owner, as BIZCOMPS does.
It is important to note that invested capital multiples are applied to returns that are
preinterest expense, as this reflects returns to both equity and debt holders. Some
examples are invested capital price/EBITDA and invested capital price/EBIT. An
invested capital multiple would not be derived for returns post-interest expense, such as
net income, as this reflects returns to equity holders (e.g., equity price/net income would
be appropriate).
ASSET SALES VERSUS STOCK SALES
When reviewing transactions of comparable companies, it is important to notice that
some transactions are “asset sales” and others are “stock sales.” In an asset sale, the
buyer typically purchases the inventory, fixed assets, and intangibles (both identifiable
and unidentifiable/goodwill). In an asset sale, a buyer typically does not purchase any
cash and equivalents or accounts receivable, nor does the buyer usually assume any
liabilities. In a stock sale, the buyer acquires the entire legal entity of the company, which
includes all assets and liabilities unless otherwise specified in the purchase agreement.
Small businesses are typically sold as asset sales as opposed to stock sales.
SELECTING THE MULTIPLES
If the analyst selects more than one multiple, which is typical, he or she must select how
much weight to give to each multiple. He or she must also decide where the selected
multiple should fall within (or even outside of) the range of observed multiples.
Generally, the multiples with the least dispersion (the tightest range) are those on which
the market relies in that particular industry. A handy statistical tool to measure dispersion
is the “coefficient of variation,” which is the standard deviation divided by the mean.
Importantly, the number of observations and the coefficient of variation are positively
correlated. In other words, as the number of observations increases, the coefficient of
variation increases, and vice versa. Therefore, three observations with an invested
capital/EBITDA price may have a lower coefficient of variation than 10 observations of
invested capital/sales yet have the potential to be a worse predictor of value. Be aware
of the differences in the number of observations among the observed measures of the
coefficients of variation (e.g., every reported valuation multiple may not be constructed
from the same number of observations). Also, become knowledgeable about the pricing
dynamics for the subject company’s industry.
Most practitioners believe the median (the middle observation) is a better measure of
central tendency for valuation multiples than the mean (the arithmetic average) because
a few outliers can distort the mean. Comparative financial analysis between the subject
and guideline companies can provide guidance as to whether to select the “median,”
“above the median,” or “below the median.” For example, a company with a high return
on sales relative to the guideline companies normally would deserve an above average
price/sales multiple. Similarly, a company with a below average return on equity is
usually accorded a below average price/book value multiple.
Another measure of central tendency becoming increasingly common, but has yet to
gain wide spread adoption—at least at the time of this writing—is the harmonic mean.
The harmonic mean can be used when the practitioner wishes to calculate the average
of a group of rates/ratios (e.g., invested capital price/sales) but is not appropriate to use
when computing the average of nonrate metrics (e.g., the average revenues for a group
of comparable transactions). As the harmonic mean tends strongly toward the least
elements of the list, it may (compared to the arithmetic mean) mitigate the influence of
large outliers and increase the influence of small values.
The selection of multiples should be explained and justified in the valuation report. In this
article’s exhibits, brief explanations are included in the footnotes to Exhibits 2, 3, 4, and
5, but you should include more complete explanation in the text of most valuation
reports.
DERIVING EQUITY VALUES
After applying invested capital multiples—the common practice when using the
transaction databases—many appraisers are ultimately attempting to reach an equity
value for their subject company. Doing so requires adding back some assets and
subtracting some liabilities and is dependent on whether asset sales or stock sales were
used as comparative transactions. The typical treatment of the derived invested capital
price is outlined in Exhibit 7 and is based on The Comprehensive Guide to the Use and
Application of the Transaction Databases, by Nancy J. Fannon and Heidi P. Walker.
Further, most transaction databases are comprised of 100% private business sales
(more on this below), and some appraisers seek to value a minority interest. As a result,
some appraisers valuing a minority interest may wish to apply a discount for lack of
marketability and/or a discount for lack of control to a pro rata value resulting from the
application of the Pratt's Stats valuation multiples. Exhibit 7 provides a general template
to consider and is sourced directly from the Pratt’s Stats Analyzer, which is included with
a Pratt’s Stats subscription or a Pratt’s Stats single-use purchase. The template in
Exhibit 7 is put forth as a guideline—while it provides considerations, it is not allinclusive. Ultimately, the appraiser is responsible for considering all relevant factors in
determining the value of a business interest.
Exhibit 7. Typical Application of Asset Multiples and Stock Multiples
Typical Application of Asset Multiples and Stock Multiples
Asset Multiples
Subject Company Revenue or Earnings
X Pricing Multiple (as selected by appraiser)
= Indicated Market Value of Invested Capital
+ Assets not included in the multiple (usually AR and cash)
- Liabilities excluded from the multiple (usually all)
+ Real estate
+ Non-operating assets
- Non-operating liabilities
= Indicated Value of Equity
Stock Multiples
Subject Company Revenue or Earnings
X Pricing Multiple (as selected by appraiser)
= Indicated Market Value of Invested Capital
- Interest bearing debt
+ Real estate
+ Non-operating assets
- Non-operating Liabilities
= Indicated Value of Equity
Using Asset Sales
Using Stock Sales
Derived Invested Capital Value
Derived Invested Capital Value
+ Assets not included in the multiple
- Interest bearing debt
- Liabilities excluded from the multiple
+ Real estate
+ Real estate
+ Non-operating assets
+ Non-operating assets
- Non-operating Liabilities
- Non-operating liabilities
= Indicated Value of Equity
= Indicated Value of Equity
Minority interest?
Minority interest?
= Pro Rata Equity Value
= Pro Rata Equity Value
Lack of control discount
Lack of control discount
Marketable Minority Value
Marketable Minority Value
Lack of marketability discount
Lack of marketability discount
= Non-Marketable Minority Value
= Non-Marketable Minority Value
Appraiser Selected Final Value*
Appraiser Selected Final Value*
*The appraiser has the option of selecting a final value dependent on specific characteristics of the subject company or the nature of the
appraisal. The above template is intended to be used as a guideline – while it provides things to consider, it is not all-inclusive. Ultimately,
the appraiser is responsible for considering all relevant factors in determining the value of a business interest.
Source: Pratt's Stats Analyze r, available from www.BVMarketData.com.
ABOUT THE DATABASES
The database summary (see Exhibit 8) contains the number of data fields in each
database, the earliest transaction, and the total number of transactions in each, broken
down by the number of transactions in each size category by sale price. Note that this
totals to over 44,000 total transactions as of March 2013. Pratt’s Stats, Public Stats, and
BIZCOMPS only include 100% transactions. This is not entirely true of the Factset
Mergerstat/BVR Control Premium Study (as of March 2013, only 75% of the transactions
were 100% interest purchases).
EXHIBIT 8. Database Summary
BVMarketData.com
Quantity of Transactions Sorted by Sale Price
Data Fields per Transaction
Earliest Transaction
Pratt's Stats
89
1990
BIZCOMPS
21
1995
Public Stats
64
1995
Mergerstat/BVR
Control Premium
Study
57
1998
Sale Price
$250,000 and Under
$250,001 - $500,000
$500,001 - $1 million
$1,000,001 - $2 million
$2,000,001 - $5 million
$5,000,001 - $10 million
$10,000,001 - $20 million
$20,000,001 - $50 million
$50,000,001 - $100 million
$100,000,001- $500 million
Over $500,000,001
Total
7,710
2,499
1,617
1,127
1,278
1,063
1,107
1,321
745
783
243
19,493
8,685
2,398
1,263
510
190
40
7
4
0
0
0
13,097
0
0
3
9
73
99
193
437
448
1,059
970
3,290
9
10
29
66
241
371
609
1,272
1,163
2,484
2,254
8,507
44,387
Notes:
All data is of 3/1/2013
BIZCOMPS Sale Price = Actual Sale Price plus transferred inventory
Pratt's Stats Sale Price = All consideration paid plus assumed interest-bearing liabilities.
Mergerstat/BVR Control Premium Study Sale Price = The aggregate purchase price given to shareholders of the target company's common stock by acquiring company.
This may not represent 100% of the company value.
Sources:
BIZCOMPS (Las Vegas: BIZCOMPS) found at www.BVMarketData.comsm
Pratt's Stats and Public Stats (Portland, OR: Business Valuation Resources, LLC) found at www.BVMarketData.comsm
Mergerstat/BVR Control Premium Study (Los Angeles: Mergerstat LP) found at www.BVMarketData.com
A BVWire survey found that 95.6% of business valuation professionals routinely use the
market approach (i.e., the application of private company transactions data as well as
guideline public company data) in their valuations, with 85% using Pratt’s Stats and 62%
using BIZCOMPS. Pratt’s Stats is the leading private company transaction database.
Started in 1996, proprietary transaction data are gathered from business brokers,
intermediaries, and other sources, including the Securities and Exchange Commission
(SEC), when a public company acquires a private company. As of March 2013, it covers
over 19,500 transactions of privately held companies and contains six valuation
multiples and 13 financial ratios computed for each transaction. With about 89 data fields
for each transaction, including income statement data, asset data, and purchase price
allocation data, it is by far the most comprehensive of the private transaction databases.
It includes whether there was a noncompete and/or employment agreement and, if so,
the terms and the amount of purchase consideration allocated to each. It also includes
how the payment of the purchase price was structured and all of the terms relating to the
purchase price. Also, an extensive amount of additional notes are included for many of
the transactions. It is searchable by Standard Industrial Classification (SIC) code, North
American Industry Classification System (NAICS) code, time period, and each of several
size criteria. Currently the database covers 779 unique SIC codes. Pratt’s Stats includes
both stock and asset sales. A Pratt’s Stats SEC-sourced Transaction Report is shown as
Exhibit 9, and a business intermediary-sourced Transaction Report is shown as Exhibit
10. While the Pratt’s Stats database consists solely of transactions of privately held
companies, a separate database was created for public companies (titled Public Stats).
Public Stats contains 64 data fields detailing the financial and transaction details of the
sales of 100% interest purchases of publicly held companies. Each transaction report
also includes an income statement, balance sheet, purchase price allocation when
available, company description, consideration, notes, five valuation multiples, and 13
financial ratios. As of March 2013, Public Stats had compiled details on over 3,300
public company business sales from 1995 to present over a broad range of sale prices.
The industries represented in Public Stats are no less diverse, as evidenced by the
roughly 453 unique SIC codes. Public Stats includes both stock and asset sales. A
Public Stats Transaction Report is shown as Exhibit 11.
As of March 2013, the Factset Mergerstat/BVR Control Premium Study covers over
8,500 completed acquisitions of public company takeovers from January 1998 forward.
The data are gathered from SEC filings. The criteria for inclusion are that the acquirer
ends up with over 50% of the voting equity as a result of the transaction. Fifty-one data
fields for each transaction include a brief company description, SIC code, five valuation
multiples, and “control premia”—percentage of price paid for stock above (or below)
public trading price as of each of five dates before announcement. The database also
computes an “implied minority discount,” which is derived from the observed control
premiums. The database is searchable by SIC code, time period, and size of company
(measured by deal value, equity value, revenue, and assets). The Factset
Mergerstat/BVR Control Premium Study database only includes stock sales. A Factset
Mergerstat/BVR Control Premium Study Transaction Report is shown in Exhibit 12.
BIZCOMPS is a small-company database (sometimes referred to as a “main street”
company database), with about 85% of the transactions having a deal value under
$500,000. As of March 2013, the database comprises over 13,000 transactions. Unlike
Pratt’s Stats and Factset Mergerstat/BVR Control Premium Study, which specify whether
the transaction is an asset or stock sale and what liabilities were assumed, if any,
BIZCOMPS classifies all transactions as asset sales. A BIZCOMPS transaction report is
shown in Exhibit 13.
SELLING PRICES—DIFFERENCES AMONG THE DATABASES
Prior to using the databases, understand what is included in the selling prices from the
various databases.
In both the Pratt’s Stats and Public Stats databases, the MVIC price includes the
noncompete agreement value and the assumption of interest-bearing liabilities and
excludes: (1) any real estate value included with the sale;, (2) any earn-outs (because
they have not yet been earned, and they may not be earned); and (3) the
employment/consulting agreement values. In an asset sale, the assumption is that all or
substantially all operating assets are transferred in the sale.
BIZCOMPS includes the noncompete agreement value in the database’s selling price
and excludes the value of real estate. In contrast to the Pratt’s Stats and Public Stats
databases, it also includes the value of employment/consulting agreements. Also,
BIZCOMPS selling prices do not include the value of purchased inventory (but that
information is included in the sale details in a separate field).
The Factset Mergerstat/BVR Control Premium Study makes no adjustment to the
purchase price.
To learn more about reported selling prices for each database, visit
www.BVMarketData.com, and read each of the respective databases’ FAQ pages.
NAICS VERSUS SIC INDUSTRY CLASSIFICATION CODES
Late in 1998, the U.S. Census Bureau introduced the new industrial classification system
called “NAICS.” As the name implies, it is a joint effort of Mexico, the United States, and
Canada. It is projected that the NAICS system will eventually replace the SIC system.
The biggest advantage of the NAICS system is its breadth of coverage, especially in
new service sectors of the economy (such as technology). The U.S. Census Bureau
updates NAICS codes every five years. While the NAICS directory has been updated
numerous times to reflect new sectors, the last time being in 2012, the SIC directory has
remained unchanged since 1987.
Pratt’s Stats, BIZCOMPS, and Public Stats cross-classify by both SIC and NAICS codes.
Lists of industry descriptions and their SIC and NAICS codes are online at the site of the
databases, www.BVMarketData.com.
KEEPING UP WITH PRICING
Pricing in some industries depends on certain multiples, while pricing in other industries
depends on other multiples. Pricing in some industries is relatively stable over time,
which implies that multiples observed in past years may still be valid today, while pricing
in other industries (e.g., almost all aspects of healthcare and technology) are quite
volatile over time, which implies that one must rely on only relevant transactions around
the time of the valuation date. Constant analysis of the databases will reveal these and
other relationships.
Contact BVMarketData publisher Doug Twitchell at dougt@bvresources.com or call 971200-4839.
Exhibit 9
Exhibit 10
Pratt's Stats® Transaction Report
Prepared: 9/18/2012 9:48:19 AM (PST)
Seller Details
Source Data
Target Name:
Business Description:
SIC:
NAICS:
Sale Location:
N/A
Advertising Agency
7311 Advertising Agencies
541810 Advertising Agencies
OH, United States
Years in Business:
30
Number Employees:
Income Data
Broker Name:
Broker Firm Name:
9
Asset Data
Data is "Latest Full Year" Reported
Yes
Data is Restated (see Notes for any
explanation)
No
Yes
Data is "Purchase Price Allocation
agreed upon by Buyer and Seller"
12/31/2010
Balance Sheet Date
Net Sales
$2,580,481
Cash Equivalents
$929,669
Transaction Data
Data is Latest Reported
Income Statement Date
COGS
Sircle, Randy
Keate Partners Ltd.
No
12/31/2010
$81,438
Trade Receivables
$237,825
Inventory
$0
Gross Profit
$1,650,811
Yearly Rent
$125,790
Other Current Assets
$173,810
Owner's Compensation
$347,692
Total Current Assets
$493,072
Other Operating Expenses
$765,059
Fixed Assets
Noncash Charges
Total Operating Expenses
Operating Profit
Interest Expenses
EBT
Real Estate
$0
$1,241,549
Intangibles
$0
Other Noncurrent Assets
$0
$409,262
$1,314
$407,948
Taxes
Net Income
$53,688
$3,008
$0
$407,948
Date Sale Initiated:
Date of Sale:
6/19/2011
10/13/2011
Days to Sell:
116
Asking Price:
$925,000
Market Value of Invested Capital*:
$925,000
Debt Assumed:
Employment Agreement Value:
Noncompete Value:
Amount of Down Payment:
Stock or Asset Sale:
Company Type:
$0
$240,000
N/A
$786,250
Asset
S Corporation
Total Assets
$546,760
Was there an
Employment/Consulting
Agreement?
Long-term Liabilities
$139,895
Was there an Assumed Lease in the
sale?
Yes
Total Liabilities
$494,952
Was there a Renewal Option with
the Lease?
Yes
$51,808
Stockholder's Equity
Yes
*Includes noncompete value and interest-bearing
debt; excludes real estate, employment/consulting
agreement values, and all contingent payments.
Additional Transaction Information
Was there a Note in the consideration paid? No
Terms:
Was there a personal guarantee on the Note? No
Seven years - interest only - 2 years - 5% interest. For the first two years of the note, the seller gets interest payments only (no principal payments). The final five
years of the note, the principal is amortized (payments are the same as a five year note).
Assumed Lease (Months): 24
Noncompete Length (Months): 60
Terms of Lease: $77,922 per year + $2,000 per month for second location
Noncompete Description: United States
Employment/Consulting Agreement Description: 1 year for both owners - full time - $240,000
Additional Notes:
The business's main office is in Cincinnati and the rent for that location is $77,922 per year. The buyer assumed that lease. The company also does a lot of
business in the Phoenix area and the owners (husband and wife) lease a condo there for $4,000 per month. The buyer agreed to pay 1/2 the lease payments (the
$2,000 per month note) and the sellers are going to pay the other $2,000 per month, as they also use the condo as a second home.
Valuation Multiples
Profitability Ratios
Leverage Ratios
MVIC/Net Sales
0.36
Net Profit Margin
0.16
Fixed Charge Coverage
MVIC/Gross Profit
MVIC/EBITDA
0.56
2.24
Operating Profit Margin
Gross Profit Margin
0.16
0.64
Long-Term Debt to Assets
0.26
MVIC/EBIT
2.26
Return on Assets
0.75
Long-Term Debt to Equity
2.70
MVIC/Discretionary Earnings
1.22
Return on Equity
7.87
MVIC/Book Value of Invested Capital
4.83
Earnings
EBITDA
Discretionary Earnings
Liquidity Ratios
$412,270
$759,962
Current Ratio
Quick Ratio
Activity Ratios
1.39
1.39
Total Asset Turnover
Fixed Asset Turnover
Inventory Turnover
N/A = Not Available
Copyright © 2012 Business Valuation Resources, LLC. All rights reserved. www.BVResources.comSM
(503) 291-7963
311.46
4.72
48.06
N/A
Exhibit 11
Exhibit 12
Exhibit 13